A trading strategy is something every trader should consider before begin trading. Choosing and preparing the right one can seem quite complicated at the start, but we are here to help you with this. You will find articles about why it is so important to have a good strategy or what to include in it. Today’s topic is precisely trading strategies and what to consider when creating one.
Key Takeaways🔑
| →A trading strategy is a crucial tool that can help improve your trading performance and mitigate risks. |
| →Individual trading styles and preferences make every trading strategy unique. |
| →Utilizing support and resistance levels, diversifying your portfolio, checking news, and learning from experts are vital factors when creating a trading strategy. |
Contents
Trading strategy – definition
A trading strategy is, in other words, a fixed financial plan. It is a compilation of tips and methods that are gathered with the purpose of helping to improve your trading performance. The guidelines in the trading strategy should lead you through your trading actions. They are there to help you avoid losses, protect your balance account and earn some profits.
What to consider when creating a trading strategy
You want your strategy to be reliable and suitable. Remember, this is your strategy. Every trader is different, has different trading styles and preferences, and thus strategies are unique. It should be fitted to your needs. Only then has the chance to be the winning one.
Let’s discuss some of the factors that ought to be considered while building a strategy.
Using support and resistance levels
When building a trading strategy, remember that support and resistance levels exist. The price tends to respect these lines and change direction on them. So be careful when opening trading positions near support or resistance. Check the price behaviour in relation to support and resistance at the higher intervals.
Closing Fixed Time Trades before the expiration
The first rule of trading says to protect your balance account before you will think about making a profit. There are many ways you can do it and one of them is the cancellation of the trade.
You open Fixed Time Trade for a specific amount and time. However, if you notice that the market is going against you and your goal will not be reached, you do not have to watch how your money is going away. The Olymp Trade platform provides an opportunity to close the trade before its expiration time. Go to the opened trades, find the one that is generating a loss and click the Sell button. You will see information about the sum it will cost you to end the trade.
Remember about this option while trading. It can save you some money.
Diversifying
Another trick you can use to protect your balance account is to diversify your portfolio. Trading diverse assets classes is safer because if one is losing, the other one may still bring profit.
Bear in mind, however, some assets are strictly correlated in a way that what happens with one affects the other one. Like Gold and United States Dollar. When the USA economy is going down on some occasions, stocks and currencies are going down as well. In consequence, the investors want something more stable like Gold (XAU). So they buy XAU and its price increases.
Diversification is not trading a few correlated assets. It is trading instruments that are rather independent of each other.
Check the news
The market is receptive to news releases. Economic reports, statistics, some events and speeches may cause changes in the particular assets’ price movements. When creating your trading strategy include checking the news.
There are many economic calendars online available for free. They will allow you to stay up-to-date with economic information from the world. And this, in turn, will help you to decide whether you should close a certain position or maybe open a new one.
Listen to the experts
You can also broaden your views with professional expertise. There are many experienced traders who share their insights in the daily Olymp Trade’s blog. You will find there ready reviews of the important data that can influence stocks, currencies, commodities and other financial instruments. It will save you some time that you had to spend searching this information in various articles and sites.
You can also use Olymp Trade Insights. Simply check out our article Olymp Trade Insights – better than any economic calendar.
Search for the repeatable patterns
The prices in the market often behave in an unpredictable way. However, they tend to form some repeatable patterns on the chart. Being able to detect and read them is a part of technical analysis.
You can base on the price action that is on the price movements themselves rather than indicators. It is common to add support/resistance lines. Then, you can look for Japanese candlesticks characteristic formations, which are called chart patterns. And you can try to find the best entry points for your trades with some kind of indicator. You will find multiple ones on Olymp Trade.
Pros and Cons of Having a Trading Strategy 😊 😞
Pros:
- Helps improve trading performance
- Guides trading actions and decision-making
- Aids in protecting your balance and potentially earning profits
- Can be tailored to individual trading styles and preferences
Cons:
- Can be complicated to create for beginners
- Requires constant tweaking and updating
- May lead to over-reliance, neglecting personal judgement
| Strategy Component | Importance |
|---|---|
| Support and Resistance Levels | Helps to predict price trends and changes in direction. |
| Diversifying | Protects your balance by distributing risk across diverse asset classes. |
| Checking News | Keeps you updated with market movements that may impact your trading strategy. |
| Listening to Experts | Provides insights and informed perspectives that can influence your strategy. |
Summary
Having a trading strategy is something every trader must consider before starting his journey. A good strategy provides much help in protecting the balance account and making profits as well. With a plan, it will be easier for you to stay on track and catch the mistakes if such happen.
There are many factors that have to be taken into consideration when building a trading strategy. Today’s article explains some of them. Include them in your strategy but do not be afraid to add your own.
Remember that all changes and modifications you can safely verify in the Olymp Trade demo account. It is not only free of charge but also replenished with virtual cash whenever you need to. There is no time limit for using it. So practice there, test your strategy there and once you are ready, move to the real account to trade real money.
Wish you all the best in the trading world!
Frequently Asked Questions 🧐
- Q: Is a trading strategy necessary for every trader?
- A: Yes, a trading strategy serves as a guiding plan to help improve trading performance and mitigate risks.
- Q: How do I create a trading strategy?
- A: Consider factors like support and resistance levels, diversification, news, and expert advice when creating your trading strategy.
- Q: Can my trading strategy be the same as another trader’s?
- A: While it’s possible to have similar components, every trader’s strategy should be unique, fitting their individual trading styles and preferences.
- Q: Do I need to constantly update my trading strategy?
- A: Yes, keeping your strategy updated is important as it needs to adapt to ever-changing market conditions and trends.
- Q: What is diversification in the context of a trading strategy?
- A: Diversification is the practice of spreading your trades across different asset classes to distribute and minimize risk.